The Election That’s Moving Markets

Two years ago, the idea would have been ridiculous. That Donald J Trump, host of The Apprentice TV show, could be within touching distance of the US presidency.

But today, it’s not such a ridiculous idea.

Some of the latest polls have him ahead, with the possibility that he could move further ahead.

And if you think it doesn’t matter to you whether Trump becomes president or not, think again.

It’s not a coincidence that the Aussie market is down 3.8% since early last week. Remember, the poll number had started to move in Trump’s favour before last Friday’s FBI announcement.

Another asset moving fast is gold. It’s up US$30 since we told you about the ‘Trump Trade’ a couple of days ago.

If Trump wins, it could go even higher. To check out the ‘Trump Trade’, go here.

Still not sure whether the US presidential election is a big deal? Check out these reports from the mainstream Financial Times:

President Barack Obama made an impassioned attack on Donald Trump on Wednesday as Democrats sought to paint the Republican candidate as a racist, in an effort to boost support among black voters amid signs they lack enthusiasm for Hillary Clinton.

Campaigning in North Carolina — a swing state with a large African–American population — Mr Obama condemned Mr Trump as unqualified to serve as president because of his rhetoric on women and previous refusal to disavow support from David Duke, a former grand wizard in the Ku Klux Klan.

And this from the FT:

A stream of leaked campaign emails and a new FBI probe into Hillary Clinton’s private server have brought the 2016 presidential campaign to a virtual tie in some polls just one week before the election.

Those emails, released by WikiLeaks, expose a cast of acolytes scrambling to head off damaging political fallout for the Democratic candidate while vying for influence inside the sprawling Clinton world.

Then there’s this from the Wall Street Journal:

Secret recordings of a suspect talking about the Clinton Foundation fuelled an internal battle between FBI agents who wanted to pursue the case and corruption prosecutors who viewed the statements as worthless hearsay, people familiar with the matter said.

Even if you don’t agree with all, or most, of what Donald Trump says, his vow to ‘drain the swamp’ of career politicians in Washington should resonate when you see the ‘family tree’ of influence surrounding the Clintons.

Not that it would ordinarily be any different on the Republican side. The Bush ‘family tree’ is just as widespread and influential.

If you can take one thing out of Donald Trump’s presidential run, it’s that he’s perfectly happy to lift the lid on the scum that dwells within and beyond the halls of power.

It means that folks are getting a real look into how politics, and political influencers, really work…and just how dirty a game it is.

And as you’ve seen, it’s all having a big impact on the markets. The Dow Jones Industrial Average is down nearly 300 points since the beginning of last week.

Not so good for Australia

As much as we’d like to stick with the Trump talk, there are other things going on.

Not least in the Aussie market, where, this week, the Reserve Bank of Australia (RBA) decided to keep interest rates on hold.

Apparently, the RBA believes the Aussie economy is moving along just fine. So it doesn’t want to stoke the fires any further.

Of course, inflating the already inflated Aussie housing bubble is a consideration too.

On the flipside of that, things aren’t going entirely swimmingly for the Aussie economy. As Bloomberg reports:

The world’s biggest iron ore miners are warning that prices are set to decline — just as they need to begin spending as much as $8 billion developing new mines to keep their best cash machines ticking over.

Over the next five-to-10 years, the miners need new production to replace almost 170 million tons of capacity that’ll be lost as exhausted pits are closed and grades decline at aging operations, according to Global Mining Research Ltd. Even with forecasts that demand for seaborne supply will peak in 2018 and prices may drop below $40 a ton that year, new iron ore projects are seen offering better returns than some alternative investments.

It may very well be that new iron ore projects offer better returns for investors. However, that doesn’t mean the iron ore and mining industry will provide much help to the Aussie economy.

And it won’t do much for the poor old federal government’s budget plans, either.

As Bloomberg also reports:

Australia’s Commonwealth projected fiscal deficit from 2015–16 to 2018–19 increases by A$8.9b to A$105.1b, according to the Parliamentary Budget Office.

Right now, the Australian federal government debt stands at $452.6 billion. It’s closing in on half-a-trillion dollars. And each year that government revenue falls behind government spending, it means a bigger debt load.

And if Australia’s primary export — resources — experiences falling prices, it likely means lower revenues and profits for mining companies, and a lower tax take for the Aussie government.

The trend is down

Below is a chart showing the number of stocks reaching 52-week highs and lows.

After you see a peak in the number of stocks reaching a new high, it’s only natural that, at some point, the number of new highs will fall, which would likely result in falling stock prices.

As it turns out, that’s exactly what has happened. Here’s the chart of the highs and lows, along with a chart of the S&P/ASX 200:

Source: Bloomberg
Click to enlarge

You don’t need me to draw lines on the chart. Look for yourself. As the number of highs falls, the number of stocks hitting a low rises, and that means lower stock prices.

Yesterday, nine stocks hit a new high, whereas 30 stocks hit a new low.

As always, we could be wrong on this, but when you add this to the ructions hitting global markets, we continue to bet on stocks falling across the board.


Kris Sayce,
Publisher, Money Morning

From the Port Phillip Publishing Library


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